My information from the retail and wholesale end of the flooring industry is that the middle and lower end of the market is pretty much gone. This started me thinking about the better end of the market… are luxury customers gone as well?
To answer this question, I immediate thought of Chris Ramey, president and founder of Affluent Insights and chairman of The Luxury Marketing Council Florida. The Luxury Marketing Council is a think tank, collaboration greenhouse and intelligence source for marketers focused on the affluent. What’s interesting about Chris is that he comes from the foorcovering industry, having been past-president of International Design Guild, a 100 showroom chain of decorative floor coverings. He'll also be speaking at Surfaces 2009.
According to Chris, history teaches us that when children graduate and move out of the home, their parents begin to retreat from materialism (see chart below). Considering we’re living longer than ever and Americans aged 50 and older now hold 77% of the assets in America, the historical retreat from materialism hasn’t exactly been true of late. Sixty truly has been the new 45, as the saying goes. But things are different now, Chris observes. This group doesn't feel so wealthy anymore and it's possible this demographic will revert back to the "old 60s" mindset. "This group has been bitten by their financial advisors and it's now looking like the government wants to take their wealth and spread it around,” he says.
According to Pam Danziger, president of Unity Marketing, a consumer insights firm specializing in the luxury mindset, "What’s happening now challenges the conventional wisdom that the most affluent are immune to economic ups-and-downs mindset.This time the ultra-affluent are being hit in the source of their wealth: the value of their homes and the stock market."
A recent report in U.S. News and World Report echoes this sentiment: “When wealthy consumers feel the need to conceal their lavish purchases in plain paper bags and avoid public shame by attending underground shopping parties, it's obvious that all is not well for the luxury goods and services market. Once considered well insulated from economic downturns, the luxury market has received a brutal beating this year, with sales plunging 34.5 percent this holiday season compared to last."
Price has become the most important factor in U.S. consumer purchase decisions and retailers must adapt to that new reality if they are to be successful. "What's so intriguing these days, whether you work on Wall Street or in Wal-Mart, is that it has absolutely become chic to be cheap," says Tracy Mullin, National Retail Federation President and CEO. "It's all about price. Factors like quality, selection, store location and customer service are taking a back seat. We believe this will continue for the foreseeable future."
Suppose nobody comes back and Michelle Obama sets the new standard and we all have to shop for clothes at Target and men only have two or three black suits like Barack? This might just be the reality, so be prepared for it:
Kick up your brand strategy
According to the experts, all is not lost. There are things that we should be doing if we are going to land on our feet.
Bob Schwartz, interim CEO of Portero, an online auction-based marketplace for luxury merchandise, suggests a revitalization of your brand. He recalls overhearing a FedEx executive's response when asked why they weren’t advertising at the Superbowl. The executive said if the public doesn't know who they are by now, then they'll never know.
Shall I list all the brands that feel that way? How about all the US car brands? If you start trashing your flooring brands around you will decrease the value of your other products (since brands set the standards). When the market turns around, what will you have to offer? Several luxury retailers, including Bergdorf Goodman and Neiman Marcus, slashed prices so severely that they looked more like they belonged in the discount outlets. I was in Macy’s the other day and my favorite brand, Ralph Lauren, was slashed down next to nothing.
Remember, hang on to your brand name. As my mom used to say, your good name is all you have!
Can you say, Web 2.0?
According to the Luxury Institute's Wealth and Luxury Trends—2009 and Beyond report, "Innovators such as Gilt, Ideeli, A Small World, Portero, Vivre, Couture Lab and several off-the-radar players such as Bespoke Global, are gaining traction online via membership models, global communities, and by aggregating categories of bespoke luxury designers and producers in one-stop-shop destinations." The report says that the economics of these online marketplaces will become much more compelling as the economic downturn makes opening stores and running traditional advertising economically challenging.
Online marketing is one of the cheapest (or free) ways to connect with your customers. Are you maximizing your LinkedIn connections (check out the We Sell Flooring group on LinkedIn) and Facebook friends to build your business? Remember, up to 78% of consumers research on Google before they make a purchase. Does Google know how to find you? According to Ramey, “Build your blog around what’s important to you or better yet, be on Lis’s blog. Check your marketing budget, shift from paper to electronic, it’s where the world is going.”
Give up cutting prices. If you’re going out of business, go out with money. If you’ve planned on staying around, protect your margin. Remember cash flow isn’t profit and profit is what keeps you in business. Cash flow just makes you think you have money if you don’t understand your numbers.
There are other ways of selling a luxury product at a slightly lower cost that's attainable for consumers in today's rough market. The more the customer buys, the more you can justify a price discount. If you’re selling carpet, find ways to offer a less expensive cushion or suggest that customers move their own furniture. Discounts must always be legitimate or you will destroy your credibility. You’ve probably noticed fragrances as well as many kinds of food brands being sold in smaller containers. All of these things can help retailers minimize production costs.
Find ways to integrate yourself with kindred souls
Several luxury hotels in the Washington, D.C. area offered special packages for the inauguration. Although they cost a pretty penny—up to $50,000—these packages mixed luxury with philanthropy. For example, one of the hotels gave a portion of the proceeds to a charity of the guest's choice. Another hotel offered an eco-conscious package. The Luxury Institute says that wealthy consumers increased their preference for socially responsible brands from 51 percent in 2006 to 57 percent in 2007, and it sees that figure rising dramatically in 2009.
"The global crisis of confidence in governmental, financial, and other institutions will drive luxury consumers to demand that luxury brands serve not just them, but society as a whole," the report says. "They will require luxury brands to be ethical with all constituents, charitable in ways that make a difference to their beneficiaries, and eco-friendly in ways that can be documented."
As Ramey says, “Find out who and what is important to you and build your business around it.”
A couple more tactics from Ramey:
- Focus on serving your best customers since loyalty is at an all time low. Identify your value proposition. Explore why your best customers are loyal to you and what makes them want to be “your customer.” In a difficult time when everyone should be hording cash, everything requires ROI. Measure every cost and every service to determine where you are getting the best ROI and stick with it. If it isn’t making you money, look somewhere else.
- We’re in a period of correction. Materialism may or may not be decreasing –- but it has certainly paused. Remember being different is doing different things, not doing the same things differently. Create new programs – serve your clients and prospective clients like you’re working with your favorite Grandmother. Leverage your current customers. Reach for something new. If they trust you with their flooring they will trust you with other products too. My suggestion, go out of the flooring industry and look at what’s being done: try the Mac counter.
To sum it up:
Despite a slower 2008 and the prospect of declines in 2009, Bain &Company research predicts that the luxury market will return to growth quickly as more and more consumers enter the luxury segment worldwide. Tomorrow's consumers will reflect more demographic and psychographic diversity, leading to changing spending patterns and rebellion against standard offerings.
Hang on to your hats folks. Life is like a roller coaster, sometimes it will make you sick and other times it will be exciting. But you bought the ticket so you might as well hang on for the ride.
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